Ratings Methodology

SQM Research high star rated funds have the strong foundations necessary to provide superior returns to adviser clients.

SQM's rating methodology incorporates a wide range of research elements that generally require up to approximately three months for completion.

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The model generates a product score, which correlates to a specific star rating up to a maximum of five stars.

The star rating spectrum allows products to be ranked within quarter star increments.

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Ratings Methodology

SQM's rating methodology incorporates a wide range of research elements that generally require up to approximately three months for completion. These elements include:

  • Detailed SQM Review Questionnaire, probing key areas including Business Profile, Investment Process and Performance, Fees, Key Staff, Governance and Risk
  • Comprehensive SQM Data Template covering a wide variety of key Fund positioning and portfolio criteria
  • Review of official documents such as PDS, Fund Constitution, FSC, statutory financial statements, and any other documents necessary to the rating process
  • In-depth meeting conducted with key people in the investment management team and relevant business-side executives (e.g. CEO, Head of Distribution)
  • Quantitative analysis conducted via the SQM Investment Dashboard, a proprietary web-based system developed internally to assess important Fund metrics

The assessment incorporates a combination of qualitative and quantitative research techniques to determine rating opinions on domestic and global products in the following categories: Alternatives, Fixed Income, Equities, Infrastructure, A-REITs, G-REITs, Direct Property, Mortgage Trusts, RMBS, ETFs, SMAs.

Information generated is passed through an assessment model at the completion of the research process. The model generates a product score, which correlates to a specific star rating up to a maximum of five stars. The star rating spectrum allows products to be ranked within quarter star increments.

Following are descriptions for each of the star ratings, developed as a guide for dealer group research teams and investment committees:

Ratings Summary

OUTSTANDING: 4.5 STARS & above

Highly suitable for inclusion on APLs : Highest Investment Grade

SQM Research believes the Fund has substantial potential to outperform over the medium-to-long term. Past returns have typically been very strong. Product disclosure statement (PDS) compliance processes are high-calibre. There are no corporate governance concerns. Management is extremely experienced, highly skilled and has access to significant resources.

SUPERIOR: 4.25 STARS

Suitable for inclusion on most APLs : High Investment Grade

SQM Research considers the Fund has considerable potential to outperform over the medium-to-long term. Past returns have tended to be strong. PDS compliance processes are high-quality. There are no material corporate governance concerns. Management is of a very high calibre.

SUPERIOR: 4 STARS

Suitable for inclusion on most APLs : High Investment Grade

In SQM Research's view, the Fund has an appreciable potential to outperform over the medium-to-long term. Historical performance has tended to be meaningful. PDS compliance processes are strong. There are very little to no material governance concerns. Management is of a high calibre.

FAVOURABLE: 3.75 STARS*

Consider for APL inclusion : Investment Grade

SQM Research concludes the Fund has a moderate potential to outperform over the medium-to-long term. Past performance has tended to be reasonable. Management is experienced and displays investment-grade quality, however they may not be yet fully tested. As a result the manager/product may have higher risks attached compared to peers.

ACCEPTABLE: 3.5 STARS*

Consider for APL inclusion : Low Investment Grade

In SQM Research's view, the potential for future outperformance in the medium-to-long term is uncertain. Historical performance has tended to be modest or patchy. Management is generally experienced and displays investment-grade quality, however they may not be yet fully tested. As a result the manager/product may have higher risks attached compared to peers. SQM Research has identified material weaknesses which need addressing in order to improve confidence in the Manager. There might be some corporate governance concerns.

CAUTION REQUIRED: 3.25 STARS

Not suitable for most APLs

In SQM Research's opinion, the potential for future outperformance in the medium-to-long term is very uncertain. Historical returns have tended to be disappointing or materially below expectations. PDS compliance processes are potentially substandard. There might be material corporate governance concerns. Management quality is not of investment-grade standard.

STRONG CAUTION REQUIRED: 3 STARS

Not suitable for APL inclusion

In SQM Research's opinion, the potential for future outperformance in the medium-to-long term is unlikely. Historical performance has tended to be unacceptable. There could be material corporate governance concerns. SQM Research has a number of concerns regarding management.

AVOID OR REDEEM: BELOW 3 STARS

Not suitable for APL inclusion

SQM Research has multiple material concerns surrounding the Fund.

WITHDRAWN

The rating is no longer applicable. Significant issues have arisen since the last report was issued, and investors should avoid or redeem units in the fund. The manager, after agreeing to be reviewed, has pulled out of the process and/or has not responded to our questionnaire.

HOLD

Rating is suspended until SQM Research receives further information. A rating is typically put on hold for a period of two days to four weeks. Dealer groups should not be making further investments into this fund until SQM has completed its additional investigations.


* It is strongly recommended advisers conduct additional due diligence over and above base requirements when considering such rated funds.